Drop in Texas building permits indicates slowdown, shift
AUSTIN, Texas - At first glance, Austin seems to be in the midst of a building boom, but the boom apparently has lost some of its pop, according to a report by real estate tracking company Point 2 Homes.
Building permits in the Austin metro totaled just over 38,000 in 2023. While that’s a big number, permits are actually down 10 percent. Analyst Doug Ressler spoke to FOX 7 Austin about what's happening.
"So basically, what we're seeing is a slowdown, if you will. Couple things. First, slowdown in migration patterns. And the interest rate. The higher mortgage rates are really inhibiting, you know, the building and buying of homes," said Ressler.
Compared to other metro areas across the nation, most in Texas are doing a better job weathering the current economic storm. Houston and Dallas led the nation in the number of permits in 2023, while Austin came in 5th, edging out the Atlanta metro. Ressler noted the tech industry and business-friendly state policies for providing a buffer.
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The Point 2 Homes report also indicated San Antonio had the biggest permit drop in Texas, by more than 30%. On the upside, several small metro areas saw increases, with the big winners being Sherman, Waco, Midland, and Texarkana.
"I don't think there's a bubble. I think what you'll see is a stabilization, if you will, between supply and demand," said Ressler.
That begs the question: should a buyer beware or buyer be choosy?
"I think it's Buyer Be-Wait for the Fed to come out and start dropping the interest rates," said Ressler.
The mortgage loan rate spike is providing home contractors like Jose Marcano with extra work.
"I think the interest rates are too high, and they want to just pretty much stay in their house, remodeled, and not sell it to go ahead and buy a new one because it will be more expensive for them," said Marcano.
Inflation and supply chain problems can also make remodeling expensive.
"The prices on materials are too high right now. Even the price of the service to give the service call to the customer are outrageous right now," said Marcano.
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The Point 2 Homes report also points to a shift in what’s being built.
In 2023, contractors broke ground on fewer single homes compared to the previous year, but there was a 22% increase in multifamily units. This indicates builders are betting on the rental market, even if interest rates drop by early 2025. And when the market improves, the type of client is also expected to change.
"So, what there is, is this market niche, this growing market in is called build rents, single family rentals. And they're typically built, in the, what we call the X-urbs, border areas around urban cores and suburbs. And they look like a house, and they rent, and people love them. And so, what we see is that's a growing market that will absorb what you're talking about in terms of a lot of the demand that's pent-up right now, that will be either moving from a interim rental to a buy position over the course of the next ten years," said Ressler.
State and local leaders should use this downtime to invest in more infrastructure projects, suggested Ressler, and do things like what’s being done around the new Samsung plant in Taylor.